Saturday, December 28, 2013

OK, the book was published in 2013, but I do not expect many people to read its around 1000 pages by the next two days. This book describes and quantifies the increasing inequalities at the national and international level in the XXI century and makes a number of proposals to reduce them. The most important of these proposals is a progressive global tax on capital. This is a useful utopia that could be applied today in the European Union and perhaps in the future extended at the global level. Of course, it is something that needs new accompanying institutions, especially a more integrated and democratic Europe that leaves behind the old nation states. The book is also a call for a better economics, more integrated with other social sciences, especially history and political science. It has an excellent accompanying web page and should be read by any economist or student of economics, especially those that think that the market is the solution to anything, or those that think that solutions can be found at the national level.

Monday, December 23, 2013

There
are several movements in Europe which have as common objective to exploit the
anxieties of the working classes to promote simplistic solutions to common
problems. These simplistic solutions can have different forms, from looking for
scapegoats (typically foreign citizens from neighbouring countries or regions,
or immigrants) to protectionism or nationalism. Of course, there is some
responsibility for these of the mainstream political parties and their
inability to introduce necessary institutional and political reforms. But in my
view the deep cause of the social distrust is the severity of the economic
crisis and the difficulties of finding alternative economic policies. In
Europe, the margin for national policies is very narrow, and significant
solutions should be sought at the EU level. But the case must be made that
populist movements are wrong and that their exploitation of people’s anxieties
is dangerous. This requires involvement in public debate, collective organization
and use of facts and reason as much as possible. If the next European Parliament
has more than a symbolic share of this type of political movements, the project
of an integrated Europe as a force for peace and welfare will be severely damaged.
And the problems that are at the root of the anxieties will get worse, not better.

Wednesday, December 18, 2013

The European
Commission has opened three distinct in-depth investigations to verify
whether various public support measures in favour of certain Spanish
professional football clubs are in line with EU state aid rules. None of
the measures was notified to the Commission, who was alerted by
concerned citizens. The Commission has concerns that these measures
provided significant advantages to the beneficiary clubs to the
detriment of the clubs which have to operate without such support. The
opening of an in-depth investigation gives Spain and interested third
parties an opportunity to comment on the measures under examination; it
does not prejudge its outcome.

Commission Vice President in charge of competition policy Joaquín Almunia said: "Professional
football clubs should finance their running costs and investments with
sound financial management rather than at the expense of the taxpayer.
Member States and public authorities must comply with EU rules on state
aid in this sector as in all economic sectors."

I couldn't agree more with Mr. Almunia, although he is an Athletic Bilbao fan and I am a Barça fan, and our clubs are among those investigated. Public subsidies for football clubs raise many interesting issues for welfare economics. It will be very interesting to follow this investigation together with my students in the course "Behaviour and Incentives in Economics: The Case of Soccer" in the Study Abroad programme of the Autonomous University of Barcelona.

Thursday, December 12, 2013

The last book by Milanovic, lead economist of the World Bank research division is, as it says in its subtitle, "a brief and idiosyncratic history of global inequality." The book is structured around three main essays: one on within country inequality, another one on between countries inequality, and another on global citizen inequality. Each of these essays summarizes and gives a personal interpretation of the economic literature on these issues. After each main essay there are some shorter chapters, called vignettes, where the author illustrates the main topics with episodes from history or literature. There are two important ideas among others in this book. One is that inequality among countries (locational inequality) is today much larger than within-country inequality, as opposed to what happened until the ninetieth century. Overall, the place of birth and the income class of the parents determine 80% of anyone's income, the remaining 20% left to luck and effort. The other main idea is that there are important reasons to worry about global inequality, although there is no global political authority to whom we can send our complaints (perhaps we should build one). The reasons have to do with a practical and an ethical reason. The practical reason is that huge inequalities at the global level create political tensions, potentially chaos that may ignite huge migration movements. The ethical reason is that from a cosmopolitan criterion of social justice, there is no reason why we should worry more about citizens from our country than about human beings from other countries.

Thursday, December 5, 2013

Scholars
and commentators that have been thinking about the potential secession of Quebec
and Scotland provide interesting insights on the sovereignty debate in
Catalonia. The constitutional, cultural, economic and demographic realities are
different, but Quebec and Scotland are the only examples of parts of
industrialized states that have tried to secede peacefully through referenda. Robert Young introduces the important concept of the transaction costs in the
transition to secession, which, as well as uncertainty costs, depend on the
politics and the degree of conflict associated to secession should this occur.
He claims that transition costs in general can be very significant, and may
delay for several decades the potential net benefits of independence. Kim Somers and François Vaillancourt
present some interesting quantitative work on the now fifty-five year old
debate about sovereignty in Quebec: despite the small number of time observations
and endogeneity problems, they show serious costs of the hypothetical event of
secession in terms of GDP and migration, but they do not find significant
overall economic costs of the movement towards independence. This may provide a
clue of the proposals for “light” or “low cost” independence that seem to be
made by secessionists in Scotland now that the referendum approaches: “independence”
seems to be compatible with keeping the pound, the queen and the BBC at least. What
secessionists find useful is the “movement”, the “process” towards
independence: that is not very costly economically and it provides huge
political dividends potentially for many years. But they need the process to
last, not to finish, that would be too costly (politically for them, and economically in general).

Monday, December 2, 2013

A friend of
mine who has spend time doing research in Canada, in Montreal (Quebec) to be
precise, told me an interesting anecdote. She attended a seminar of a
researcher whose conclusions reinforced an argument of the supporters of Quebec’s
independence. When my friend had to opportunity to talk to this researcher in
private and raised the issue of his support to independence, the researcher
said that he was surprised that my friend assumed that he was pro-independence,
since this was a private issue that he completely separated from his work as a
researcher. I bet that this anecdote would not have happened in Spain or
Catalonia, where it is much easier to infer the political position from the
statements made in research formats. There is nothing wrong in being a
scientist with political positions. That is what Einstein used to do. But the
theory of relativity had little to do with world peace or social justice, the
ideas advocated by Einstein. It is much more difficult to separate the two
spheres when you do research in social sciences, where the choice of topics and
the interpretation of results is unavoidably impregnated by one’s biases, as
was openly and unashamedly done by the neo-conservative members of the Mont Pelerin Society.
Scientists should be modest and open-minded, and be willing to update their prior
beliefs as they receive contradicting evidence. The bad thing is when someone
tries to disguise his or her prejudices into science. Some of the best
economists today are openly partisan (they are openly left-wing), like
Stiglitz, Krugman, Bowles, Aghion, Piketty or many others: in this case their
progressive values have inspired their big questions, but their answers are
nuanced (at least in my biased view) enough to see that they know how to update their beliefs. I prefer these intellectuals, rather than those whose bias is to ride the wave of the moment or to look somewhere else in the face of injustice or stupidity.

Saturday, November 30, 2013

The
Scottish nationalists have announced the details of their project for an
independent Scotland, which includes keeping the Queen of England and the pound,
and membership of the European Union, although officials from Brussels have
repeatedly announced that once independent, Scotland would start its new life
out of the EU and would have to apply for membership like any other external country.
Two things seem to me quite extraordinary from this announcement. First, that it
has taken several years for the Scottish nationalists from their commitment to
independence to unveiling the details of what they exactly mean by
independence. Second, what they mean by independence does not seem very
independent, which seems fine to me, because I do not exactly understand the
meaning of independence (or sovereignty) in the European Union and in a
globalized and interconnected world. There are some differences between the
Scottish nationalists’ campaign for independence and the Catalan nationalists’
campaign for independence. For example, Catalonia is relatively richer than
Scotland compared to Spain or the United Kingdom respectively. Or in Catalonia
the identity is based more on a native language that is spoken by a larger
fraction (although not as the first language of a majority) of the population,
although almost everybody speaks two languages, because since they both belong
to the same language family, it is easy to speak both. One similarity between
both campaigns, though, is that both reveal a preference for a sort of low cost
independence. Catalan nationalists have given even fewer details of what would “independence”
look like, and are also thinking hard on how to keep EU membership in any
event, but when one of them threatened with a one-week general strike as part
of the campaign for a referendum, the others immediately said that not even a
one-day strike was on the agenda.

Tuesday, November 26, 2013

I have attended some policy debates recently on the duality
of the Spanish labour market (the fact that we have a record level of temporary
contracts). A few years ago, a group of economists proposed a very simple
reform: to replace all contract options by basically one single fixed contract
that increases the firing costs over time, leaving temporary contracts for
season contracts in product markets where work is really seasonal. Since
current workers with fixed contracts would keep their current contracts it is
hard to understand why trade unions have so fiercely resisted such reform. Samuel
Bowles, in his chapter on bargaining in his “Microeconomics” book (page 201), argues that “getting
to the bargaining frontier may require new institutions or precedents, that
with some probability will later be deployed to the disadvantage of one of the
bargainers”. If this can be applied to labour reform in Spain, perhaps
organized workers do not fear the new contract per se but fear that it will
open the door somehow to them losing bargaining power. Assuring them that it
will not be so is perhaps the key to a successful reform. This requires
expanding the political economy traditional framework (social groups defending
their interests about the particular policy at stake) to take a more
comprehensive view. Acemoglu and Robinson have a recent paper on policy
advise where they also claim that advisers should take into account the effect
of reforms on the political power of affected groups. Perhaps in these cases it
would be better to propose the reform together with a broader package that
makes it more acceptable to workers, and that includes tax issues, training
possibilities or participation in firm management.

Friday, November 22, 2013

I participated today in an event organized by the Foundation for European Progressive Studies (FEPS) in Barcelona. I chaired an interesting debate on industrial policy, where some interesting ideas were exchanged on the relative importance of vertical versus horizontal policies, or the need to pay attention to the ideas of Dani Rodrik on the institutional design of industrial policies. The organizers took advantage of the event to present the magazine Queries, which is the first progressive European wide magazine. The event was attended by an interesting mixture of practitioners and academics, among them the economist from Columbia University Stephany Griffith-Jones. I believe that FEPS are doing interesting work in trying to get the practice of European progressive parties closer to the ideas of top left-wing academics. This kind of work is specially needed in times of great political uncertainty and volatility, when the dangers of populism and technocracy must be fought with solid arguments and well-thought strategies. The difficulties of progressive strategies at the national level must be overcome not with desperate attempts to copy the recipes of the populist, but with the update at the UE level of the principles that have worked well in the countries that have been under social-democratic governments for more years.

Sunday, November 17, 2013

Teachers
routinely claim that students are each year worse than the previous one. It
seems that Aristotle was among the first recorded scholars to make this claim,
which reveals that obviously it cannot be true. Of course students keep
changing because society changes. A similar claim is made about politicians.
The times of Winston Churchill and Franklin D. Roosevelt are gone, and since
few people are alive to remember them, we assume that they were much better than
our current politicians. Obviously this claim cannot be true either. A linear
trend towards always increasing mediocrity in the quality of our politicians
cannot be true. Again, politicians change with society, and the quality of
individual politicians is to a large extent random. Of course, Obama is not
worse than Bush, although this was worse than Clinton. But that is my opinion,
and it is very difficult to establish the criteria by which they should be
judged. Mandela and Lula da Silva did not possess great academic credentials, but
were arguably among the best politicians ever. There are some objective aspects
of reality, though, that can be used to think a little bit about this issue. For
example, there are today more democracies than 30 years ago, and there
are less dictatorships. Unless we argue that democratic leaders are
systematically worse than dictators, it is impossible that our political
leaders are linearly worse as time goes by.

In a previous post (for which I have received some understandable criticism) I claimed that most probably soccer player Leo Messi had already reached the peak of his aging curve in terms of professional performance. I extracted the idea from the book by Nate Silver "The Signal and the Noise". This book clarifies that aging curves are very noisy, and that there is a lot of variation around the average aging curve. It also argues correctly that different professionals have different aging curves: Olympic gymnasts peak in their teens; poets in their twenties; chess players in their thirties; applied economists in their forties... Since I turned 48 some days ago and I am an applied economist, I hope to be one of those that prove that variation is high. The location of the peak depends on physical and mental factors. Mental factors include psychological, cultural and social factors. I think that a lot of decline in academics can be explained by egos and people spending too much time on trying to keep old reputations and positions of power, rather than by capabilities. But I may be wrong. As economist Avinash Dixit once said, I think a good idea for professionals beyond the average peak is to try to behave always as if we were 23 years old. Actually, the best active economists I know are older than 60 and I don't think they have peaked. What do they have in common? They like to work hard, they are beyond vanity, and to be honest, they don't have a blog...

Saturday, November 16, 2013

It is frequent to
read in the newspapers articles and columns by famous writers, or interviews
with them, on a variety of issues, inlcuding of course politics and economics. It is certainly not only writers who are asked about these issues, so are
singers, sports players and artists. In a free world, their right to express
their opinions must be respected. However, one should be aware that their
opinion is in many cases as valuable as the opinion of any person walking on
the street. The only difference is that the famous have more access to the
media. An article by Terry Eagleton in the Times Literary Supplement criticizing the political
and economic opinions of J.M. Coetzee and Paul Auster (and the correspondence between them, which has recently been published as a book) reveals that the value
of their judgement on these and other issues beyond literature is close to zero. These are great writers,
but the fact that you are a good writer, singer, sports player or artist does
not make your opinions in any field any more interesting than anyone else’s.
This is one of the reasons why one should be suspicious of the views
of people (like some in political circles) who only or mostly read from
newspapers, which devote a disproportionate space to the opinions of famous people.

Friday, November 15, 2013

At a time of political and economic uncertainty, especially in
Europe, it is useful to vindicate the political tradition that has
provided more welfare to more people for a longer period of time: social
democracy. Social democratic government experiences in northern and
central European countries are the most successful ever, in terms of
shared prosperity. According to the words of the late historian Tony Judt,
social democracy is not only a list of government policies, but also a
collection of values that are the best to navigate an uncertain
globalised society. It is something of a paradox that social democratic
organisations face electoral difficulties in many countries at a time
when the alternatives (deregulated capitalism, communism) have failed so
clearly the test of government. The social democratic model of shared prosperity means high taxation with a generous universal welfare state, a clean
government, environmentally sustainable growth, excellent public
education, and willingness to introduce reforms when there are crises,
while maintaining the essential aspects of the model. These
characteristics are compatible with open markets and large privately
owned firms. The countries that have remained faithful to this model are
today among the most stable and prosperous in the world. They are not a
paradise, nor are they free of problems, but any proposals on how to
exit a crisis should start from this benchmark.
The aim of egalitarianism should not be limited only to a static
measure of equality in income. It should incorporate concern over the
inheritance of inequalities, lack of social mobility and the overly high
correlation between the income of parents and the income of children.
It should also focus on inequality in access to power, and in the access
to discrete contractual positions (weak or strong, principal or agent)
that are determined by an individual’s wealth.
(The full article has been published in European Politics and Policy and can be read here).

Saturday, November 9, 2013

OK, a more
precise statement should be that it probably would maximize the long run
probabilities of FC Barcelona winning games and titles to sell Leo Messi as
soon as possible, but that I acknowledge that this will probably not happen and
that broader lessons can be extracted from it. I am a Barça fan and an admirer of Messi, but professional sports’ players
have an age profile such that they peak at some point between 25 and 30 years
old and after this peak their performance decline (Messi will be 27 this
season). Strikers that base their quality on speed, decline on average earlier
than other players. That does not mean that after their peak they decline
abruptly, but it may also happen. If you have an asset that is still highly
valued by potentialbuyers although it
is about to decline in performance, the asset should be sold, because with the
resources you could buy new assets that help you win more in the future: better
scouts, new players, new facilities for the youth teams. That is more so if
in your team you have another player that is going to be one of the best in the
world in the next few years. In the player transfer market, like in auctions or
takeovers, the selling parties usually have more bargaining power, and buyers
in soccer tend to overpay for strikers. I would not wait to sell Messi after
the next World Cup, which is played in Brasil, and the likelihood that Messi
and Argentina will fulfill their exaggerated expectations is low. Most
probably, Messi will lose value during the World Cup, even if he does not get
injured again during it or just before it. Messi has won four times the Ballon d’Or,
and has been free of injuries for four or five seasons. That will hardly
happen again. Of course, all this is a prediction, and events may prove me
wrong, but I try to stick to the rules of expert Nate Silver in making
predictions: combine data, past experiences and informed intuitions. Also, it
may happen that he is sold but that FC Barcelona runs into other problems (like
not sacking other players that have their mind more in the gossip magazines than
on the pitch) and stops winning for other reasons. However, FC Barcelona
probably will not sell him, because of the confluence of the endowment effect
and populism. Due to the endowment effect, a well-known bias in behavioral
economics, economic agents overestimate the value of assets they possess
relative to the same assets when they do not possess them. Populism is pervasive in
modern soccer especially in large markets like Barcelona, where two sports
newspapers and an army of talk shows and media journalists compete to keep lots
of voting and influencing fans excited. In the direct democracy of the best
European clubs, the short run passions of fans have more power than their long
run interests (these not being to maximize profits, but the probabilities of
winning in the future). Fans should be protected from their short run selves:
that is the broader lesson.

Sunday, November 3, 2013

In the United
States the marginal tax rates (ie, what the wealthy pay for what they earn
above a certain threshold ) of the income tax were very high after the second
world war. In the recent decades, they declined dramatically.
The debate on this issue has been reactivated as a result of French president
Hollande 's promise to raise the marginal rate of the income tax to 75 % (the
promise has beenfulfilled, but for a
very high threshold and for corporations, which has received protests from the
rich, especially football clubs), and the movement "Occupy Wall
Street", which had as one of its slogans "We are the 99 %" , as a
reference to the fact that economic growth in recent decades only benefited the
richest 1%.
Apart from the historical evidence, the interesting thing is that the best
economists who have studied this believe that a top marginal rate above 70 % is
desirable, meaning that it is socially optimal,
because contrary to what the right says, it would not create a major
disincentive to wealth creation, and would allow for ambitious distributional
programs.
Paul Krugman has repeatedly referred to this in his blog, for example here and here.
There is a very interesting book with articles by some of the leading experts
on the subject (Sáez, Piketty, Diamond) which is the "Occuppy Handbook". It is a very interesting book with articles by leading
economists of the highest academic level that support progressive proposals.
Incidentally, it is interesting that this book does not show any Spanish economist.

In the article on democracy, inequality and capitalism, Milanovic raises the issue that Europe is not used to massive immigration in the way of the US or
Australia. As a result of that and in conjunction with the economic and financial crisis, welfare states are threatened by the the loss of wealth and confidence of the middle classes, which historically have been key to sustain democracy. Europe remains the most attractive region to live, although it is not the most dynamic. It remains a factor of attraction for workers from other regions of the world, but its lack of growth conditions the reaction of local populations to immigration. Milanovic wonders if as a result of this dynamics, the coincidence of capitalism and democracy in Europe is an interlude, an exception limited to the second half of the twentieth century and the early years of the twenty-first. In his most recent article, Milanovic argues that to prevent economic decline, Europe should be ready to accept new immigration in a structured and ordered way. Immigration is inevitable, and it is desirable economically in a continent that is declining in terms of innovation and demographics.

Sunday, October 27, 2013

The
future of the European project is threatened by our own version of the Tea
Party. A populist diverse movement that draws from populism, nationalism and a
modernist extreme right (such as that of Madame Le Pen in France) combines an
anti-politics rhetoric, an anti-immigrant rage and a protectionist anti-European
mentality. It is not a conventional extreme right, which is something it has in
common with the American version. But it is anti-rational, anti-government and
promises simplistic solutions to complex problems, à la Beppe Grillo in Italy.
It is a very serious enemy to all those that think that expanding and improving
democracy and welfare is the solution in a more, and not less, integrated
Europe. The answer to it must be a cultural fight in favour of a post-national
Europe, but one that appeals not only to rationality, but also to feelings and
emotions in favour of a borderless harmonious Europe in peace with itself. In
Spain, the European Tea Party probably does not need any new affiliated
organization, because nationalism (central or peripheral) plays its role and
appeals to the same instincts. But Europe is in danger from this confluence of
populism and nationalism: will the European Union still exist in ten years
time? What if it does not exist? Time for action.

Thursday, October 24, 2013

Traditional economics assumed that human beings were rational but helpless. Rational in the sense that they had well defined preferences and objectives, and everything they did was consistent with them. But helpless in the sense that when their decisions have impacts on others that do not have any role in deciding outcomes, individuals needed external help, in the usual form of government intervention. Instead, the late Elinor Ostrom, in her Nobel Prize lecture in 2009, argued that real human beings are boundedly rational but resourceful. Individuals are more complex than originally assumed by economists. Real humans are affected by systematic biases in their judgment and decicion-making, but also have resources, such as social preferences, to overcome collective dilemmas. Ostrom also emphasizes that goods are also more complex than originally assumed: we don't have only purely private and purely public goods, but there are goods with intermediate degrees of rivalry and excludability (the two dimensions that define whether a good is private or not). Relatedly, forms of economic organization should not be restricted to government versus market, but many different or intermediate forms, such as communitarian or mixed forms of provision, are very often desirable. But Ostrom had a special distrust for those external interventions that try to impose (usually one-size-fits-all) solutions upon communities without exploring first the ability of communities themselves to find institutions that may alleviate collective problems. A potential interpretation of her words is that social problems should not be left to technocrats, or experts (as suggested by libertarian paternalists such as Thaler and Sunstein), but to communities themselves. Ostrom devoted her career to show that features such as communication, trust, egalitarianism, transparency, participation and long horizons promoted cooperative institutions with just the minimum necessary external intervention. One can interpret this as a call for a minimum government, but I prefer to interpret it as a vote in favour of a better democracy as opposed to technocracy.

Thursday, October 17, 2013

The
supporters of the secession drive in Catalonia spend enormous efforts and
resources in trying to gather international support for their cause. There are
at least two books in English in the bookstores explaining the arguments in
favor of independence, written by local supporters (apparently they failed to
find foreign prestigious experts, which would have increased the credibility of
the endevour). The Catalan autonomous government is itself spending public
resources in this international campaign, for example by deploying an
organization of international supporters (of Catalan origin) called “Diplocat”.
Letters to President Obama have been sent (and received a cold shoulder).

The results
of all these efforts have been very meager. Basically, there is no relevant foreign
support for Catalan independence. European Union officials have repeatedly
stated that an independent Catalonia would start its life out of the EU, and
prestigious news organizations such as The Economist or the Financial Times
have expressed their support for a better, federal integration of Catalonia in
Spain in a united Europe. The promoters of independence should reflect about
the reasons of their failure. Perhaps the distributive implications of the drive
and of the actual independence (if it ever happens) of a relatively rich region
where human and identity rights are fully respected, are not the ones that
usually ignite international solidarity campaigns. We are talking about XXI
Century Catalonia, not India, South Africa or Tibet in the XXth Century. No
peace minded international activist would desire instability in Europe, especially
southern Europe and the Mediterranean. Federalism is as a more ambitious and at
the same time realistic alternative. Secessionists often argue that federalists
do not have supporters outside Catalonia (disregarding the opinions of 40% of Spaniards
according to a recent survey and the above mentioned international supporters),
as if implying that external support is not needed for independence. But new
frontiers are an international issue. Climate change, financial instability, or
global poverty cannot be fixed from any of the current national states in
Europe (as Daniel Cohn-Bendit often says), much less from a new, small
nation-state (especially if it is not accepted as a member of the European
Union).

In a very
revealing piece today in the New York Times (NYT), several Catalan business executives
express their discrepancy with the secessionist drive. The reporter only
collects the opinion of one executive in favor of independence. This is Jordi
Bagó i Mons, chief executive of Serhs, a provider of hotel catering and other
tourism services, who is a member of a business association that supports
secession. Mr. Bagó argues that with independence “we can construct a much
better economic model for Catalonia”. One wonders whether Serhs itself should
be an inspiration for this model, since the President of the company and former
politician, Mr Ramon Bagó i Agulló, has been investigated for fraud by the official
Catalan Anti-Fraud Office (see El Pais, January 29th, 2013). Very
appropriately, the NYT report explains how the Catalan government that promotes
the secessionist drive has itself been weakened by corruption scandals. It is
then not surprising that this movement fails to inspire foreign supporters, as
previous Catalan freedom fighters inspired the support of people like George
Orwell.

Tuesday, October 15, 2013

Today I attended the opening lecture of the Master in Economics and Business Administration at the Autonomous University of Barcelona, my university. It was given by Vicente Salas, a professor now at University of Zaragoza and in the past in our University that I admire, that was the chairman of my thesis committee in Florence back in December 2000. The topic of his presentation was Entrepreneurship and Development, where he presented a summary of the literature and a summary of his research on the topic. He left the most inspiring part for the end of his lecture, where he presented his thoughts on the relationship between economics and business, a topic to which he has devoted his academic career. He said that there were three ways to approach this relationship:
1) Economics AND Business. This is providing business people with a basic knowledge of economics, so that they can have a vocabulary and some basic ideas about the economic context, in a similar way as they should know something about sociology.
2) Economics FOR Business. This is about managerial economics, thus providing business people with some managerial tools inspired in economic rationality, such as incentive or game theory.
3) Economics OF Business. This should be about asking questions such as why firms and entrepreneurs exist. It should also be about the role of entrepreneurs as organizers and the economic role that organizations play in society and the input they contribute to productivity. It should be about continuing the agenda of Roland Coase, who recently passed away, and others who are concerned about some fundamental questions about how our society is organized.
Professor Salas argued that unfortunately most undergraduate teaching focuses on the first way of approaching the topic, perhaps a little bit on the second, but the third approach is almost absent and much more emphasis should be given to it.

Wednesday, October 9, 2013

Some economists tend to emphasize some market failures more than others, and despair at the failure of ordinary citizens to see the damage that their preferred market failure produces on the economy and society. A clear example is the emphasis on competition. I share a concern for competition: wherever possible and desirable, competition should be promoted. Competitive markets, under some conditions, are conducive to efficiency. However, these economists should not forget:
-The theory of the second best: when there is more than one market failure, addressing only one of them does not guarantee efficiency. For example, if there is a negative externality and market power, addressing only market power may make the externality problem worse by increasing output.
-The presence of a competitive market by itself does not do anything by itself in terms of equity, although competition may promote a more meritocratic society, which may be good if there is equality in the initial conditions.
-More competitive markets create losers. Potential losers will not accept more competitive markets unless there are mechanisms to compensate for the losses. Even if these mechanisms were present, potential losers may find that promises to compensate them are not credible, unless the adequate institutions are in place. Sustainable competitive markets require sustainable welfare states.
-Some competition takes place in markets where there are positional externalities, that is, consumers compete with others for status, as described by Robert Franks in "The Darwin Economy". This sort of competition is wasteful and has large welfare costs.
I agree that competition and competition policies are important ingredients of a modern economy, but competition should not be seen in isolation from the overall economy. Ordinary citizens are perhaps not that ignorant of the overall impact of competition.

Monday, October 7, 2013

In "The Globalization Paradox" Dani Rodrik establishes the trilemma between an internationally integrated economy, political democracy and the nation state. The three things together are not possible, and societies must choose at most two of them. In the 1920s most developed nations chose to exclude de facto political democracy by sticking to the gold standard, keeping the formalities of the nation state but making it impossible for majorities to impose their will. After the second world war, nation states limited international economic integration and preserved the possibility of majorities imposing their will for example through an expanded welfare state where democracies had this preference. Another possibility if to make progress toward a global federalism, making compatible democracy in a new global governance and global economic integration, but by leaving behind the nation state as we know it. Many may think that this is impossible, and certainly Dani Rodrik thinks that it is not even desirable, because nation states allow for diversity and experimentation. However, making progress towards federalism is possible at the European level, and we have certainly already seen much progress in this direction, for example in the Schengen agreement that establishes common border controls, or in the common monetary policy. The problem is that these arrangements are imperfect (as seen in the euro crisis or in the tragedy of immigrants in Lampedusa). The solution of the euro crisis and the Lampedusa tragedy is the same: we cannot stay in the middle. Either we make progress towards a more integrated, fully democratic and federal Europe, or we restore national border controls and national currencies. I believe it is much better to go forward, because there are many ghosts hidden in the European geography, and more Europe is needed as a collective good to keep peace and stability. In Europe, my preference for the two feasible sides of the Rodrik trilemma is clear: leave the nation states behind. The problem, and the deeper paradox, is that the decision has to be made by the nation-states themselves, because the European Union is a union of nation-states. They have voluntarily surrendered already much sovereignty, and they should surrender much more.

Thursday, October 3, 2013

Paul Krugman and Lydia DePillis explain that apparently well intentioned "big business" interests fail on many occasions to stop policy outcomes that are really bad for themselves. As an example, they mention the government shutdown in the US, which clearly goes against business interests. While conventional wisdom assumes that big business have a lot of power in politics, the fact is that, although they do try to have a lot of power, the degree to which they are successful depends on the strategies they follow, the strength of democratic institutions and other determinants. One of the reasons they fail to stop really disastrous outcomes is that, when they are transparent, they typically surround their pleas by an aura of political neutrality. When one of the political sides is much more biased towards irrationality, neutrality's only effect is to give an advantage to the crazy side. Something similar happens not only in the USA with big business, but also in other countries with all kind of people with professional or other reputations to maintain. For example, in Italy it is obvious that disaster for the country as a whole and for normal businesses in particular has a name: Silvio Berlusconi. And it is obvious to any external observer that the only serious organized alternative to Berlusconi is the center left. Why then many apparently reasonable economists, business people, professionals, artists, etc., fail to express their explicit support for the reasonable side is a mistery to me. In Spain, we are in the midst of an enormous economic and institutional crisis, with right wing parties in Spain's and Catalonia's governments not being even able to have structured negotiations that facilitate a formula that makes it possible for Catalonia to have a better status in Spain, mirroring the logic of federal multi-national states. Center left and left parties and organizations are developing very reasonable ideas on how to improve upon the status quo. But if they do not receive the explicit and active support of people that in private acknowledge that we are headed for disaster (one that could threaten the stability of the euro zone and southern Europe), disaster will just happen.

Friday, September 27, 2013

The
intergovernmental panel on climate change (http://www.ipcc.ch/)
has issued a new scaring report. This report collects the scientific consensus
on climate change. “Continued emissions of greenhousegases will cause further warming and changes
in all components of the climate system. Limitingclimate change will requiresubstantial and sustained reductions of
greenhouse gas emissions. Global surface temperature change for the end of the
21st century is projected to be likely toexceed 1.5°C relative to 1850 to 1900 in all but the lowest scenario
considered, and likely to exceed2°C for
the two high scenarios,” said Co-Chair of the Panel Thomas Stocker. “Heat waves
are very likely to occurmore frequently
and last longer. As the Earth warms, we expect to see currently wet
regionsreceiving more rainfall, and dry
regions receiving less, although there will be exceptions,” he added. Projections
of climate change are based on a new set of four scenarios of future greenhouse
gas concentrations and aerosols, spanning a wide range of possible futures. “As
the ocean warms, and glaciers and ice sheets reduce, global mean sea level will
continue to rise, but at a faster rate than we have experienced over the past
40 years,” said Co-Chair Qin Dahe. The report finds with high confidence
thatocean warming dominates the
increase in energy stored in the climate system. Unless we do something, life
in our planet will be something very different a few decades from now. The
exact degree to which that will happen is uncertain, but the probability of a
disastrous scenario is far above zero. Of course, the ones who will suffer more
will be the most vulnerable and poor. Time to combine egalitarianism and environmentalism at a global scale.

Monday, September 23, 2013

Angela Merkel has obtained an excellent result in the German general election. However, the liberals and the euro-sceptics failed to overcome the threshold to go into Parliament. The result is that there is a left wing majority in the German Parliament. This majority will not translate into a left wing government because the SPD rejects to be in government with the extreme left (probably for good reasons). However, the fact that a potential left wing majority exists is an important constraint for any policy. The social democrats slightly improve their percentage relative to the previous election. This illustrates the general difficulties of the social democracy in Europe, but at the same time it shows that any realistic progressive alternative must be built around social democracy. The wave of fringe parties eroding the role of mainstream parties has been stopped, at least in Germany, probably showing the correlation between a country being deep in crisis and the surge of these fringe parties. Wolfgang Munchau, associate editor of the Financial Times, said that a slight improvement is the worse that could happen to the SPD, because it will not cause a big change in German policies towards Europe, and it will not trigger the profound renewal that is necessary in the SPD. However, given that realistically it was very difficult to avoid a good result for the Christian Democrats, a grand coalition between the CDU and the SPD is a lesser evil that should produce small but significant changes in the policies to manage the euro crisis. We should expect some moderation of the austerity policies and a serious push towards an integrated Europe that make growth policies possible.

Tuesday, September 17, 2013

The Economist recently published an article arguing that the influence of big business in politics was excessive.
The appointment of individuals with a political past, or with political
connections to the board of directors of private companies, is
potentially one of the tools that businesses have available to them in
order to influence public policy decisions. Of course, it can also be
argued that some former politicians have other skills in addition to
access to government and its decision-making channels. But the presence
of political staff on the boards of directors of large private companies
has become a concern regarding the functioning of our democracies and
our corporations.
The extent of the phenomenon has been documented by systematic
empirical evidence in countries as diverse as Indonesia, Germany
(historically at the time of Hitler and also contemporaneously), France,
and the United States (including the evolution of companies connected
with former Vice President Dick Cheney and those connected with former
Treasury Secretary Timothy Geithner). The phenomenon therefore has a
huge international scope and is present in both developed and developing
countries.
There is also anecdotal evidence for countries such as Chile and
South Africa – where some of the main leaders of the African National
Congress, the party of Mandela, have been co-opted by companies
traditionally in the hands of the white minority. One surprising aspect
is that in some cases there is a negative association between the
presence of former politicians and business performance, while in other
cases this association is positive. Acemoglu and his coauthors, in their study of firms connected to former US Treasury Secretary Geithner, suggest
that factors driving this association to be positive include a weak
institutional framework and high discretion in making political
decisions (which is more common for example in times of crisis).
(The entire text, written by Pau Castells and myself, can be read here)

Friday, September 13, 2013

Mr. Artur
Mas, the right-wing president of Catalonia and leader of a party tainted by
corruption scandals, wrote an article in the New York Times on Tuesday
supporting Catalan independence. He argued that the issue should be left to
Catalans to be decided in a democratic referendum, for which he has not
clarified what would the exact question be. It would be good to discuss and
decide the issue democratically and within the law, which now is difficult
given the strict control and manipulation of public media by Mr. Mas and his
supporters, who have at this stage lost control of a nationalist movement that they decided
to support with the objective of making the citizens forget about budget
cuts and corruption scandals. He argued that at the same time Catalonia wants
to be a member of the European Union. However, for an independent Catalonia to
be a member state of the European Union it would need the unanimous approval of
the current 28 member states. So far, not a single one of them has declared its
support (Latvia’s leader has said that it would consider the possibility). And
it is hard to see how a single member state would accept the precedent of a
relatively rich part of a member state breaking it up. To convince other
countries that Catalan independence is a good idea, the supporters of the idea
should show evidence that the project improves welfare not only in Catalonia
(something that is very questionable given that Spain is Catalonia’s main trading
partner) but also elsewhere. They should answer the question: Will Europe be a
better place if Spain breaks up? The chauvinist Italian Northern League has expressed its support to Catalan independence. With such supporters, it is hard
to see how serious Europeans will ever express their support. A federal Spain
in the transition towards a truly integrated Europe, where the member states
progressively lose importance, is a much more intelligent way to solve forever
the lack of recognition of Catalan identity. The Economist also supports a new understanding between Catalonia and
Spain. The Financial Times explicitly argues in favour of an asymmetric federalism. It seems that, although federalists are treated like psychotics in some Catalan circles, federalism has much more and more qualified international support than
independence.

Tuesday, September 10, 2013

In this article, Severin Borenstein denounces the dogmatism of right-wing commentators who try to manipulate the ideas of Roland Coase to promote their anti-government ideology. In the case of the use of market mechanisms to correct negative externalities, for example climate change, Borenstein argues that the left has made in the last decades a learning exercise that the right is far from doing. In his classical article "The Problem of Social Cost", Coase argued that under two strong conditions (complete property rights and zero transaction costs) the parties to an interaction with external effects could bargain to achieve an efficient solution, with no need for government intervention. That has been used by the right to promote the ideas of privatization and of laissez-faire in general in case of market failures, forgetting that Coase did not claim that the two conditions were a description of the real world. Of course, the Coase theorem expanded the potential for market solutions to social problems, but in many cases governments are needed to make markets possible, as Borenstein argues. More generally, the left has learned that markets and governments are mostly complements and not substitutes: and many more examples could be provided of the fact that when the left becomes a learning left (open minded and evidence based) societies can reach the highest possible standards of living. A learning left is a hope for humanity, an ignorant right one of its main threats.

Saturday, September 7, 2013

Tokio has just won the bid to organize the 2020 Olympic Games. In May 2004, days before the organizer of the 2012 Games was decided, the British magazine The Economist wrote a piece under the title "Do London a Favour: give the Olympics to Paris." Following this line of thought, Madrid should be celebrating that the games will be organized by another city. Instead of organizing an expensive party, Spain's capital will be able to spend its scarce resources on more pressing needs, such as health, education or social projects. Apparently, the weakest point of Madrid's bid was the failure of the Spanish authorities to show determination in its fight against illegal doping. Probably the financial and institutional crisis (corruption scandals included, to which sports doping belongs) did not help. When Italy was ruled by the government of the technocratic economist Mario Monti, it wisely decided to withdraw the bid to organize the 2020 Olympics. Let's hope that the Spanish authorities, who have not been convinced by other arguments, find now the energy to fight any form of corruption, including doping in sports.

Wednesday, September 4, 2013

Ronald H. Coase, the Nobel Prize of Economics in 1991, died on Monday September 2nd in Chicago, at the age of 102. He was born in England but spent most of his life in the USA. He was one of the most influential economists of the recent past, and probably one of the most used and abused ones. His contributions can be summarized probably as explaining the limits of both markets and government. In "The Nature of the Firm" he explained that it is often costly to use the market system, and that this is a reason for the existence of hierarchycal organizations such as firms. The key to the existence of one form of allocation mechanism or another was the presence of "transaction costs". In "The Problem of Social Cost" he explained that when people and firms behave in ways that harm others, government intervention is not necessarily the solution. If there are no transaction costs and property rights are well established, the parties in the economy can negotiate through free exchange to find an efficient solution. By this so-called "Coase Theorem" market efficiency was expanded even to the case of "externalities", which are considered a market failure in traditional economics. What many "abusers" of Coase have forgotten is that this result was established under very strong conditions (zero transaction costs and complete property rights), that are usually absent in the real world. Coase's objective was to try to direct attention to the presence of transaction costs and the need to find institutional solutions adapted to different types of transaction costs. Then Coase has been used to justify extreme privatization policies or more useful institutional innovations such as pollution permits or spectrum auctions. Besides his substantial contributions, he should also be remembered for his method of working and writing, always opposed to dogma, always mindful of institution and empirical details. This can be shown in his wonderful essay "The Lighthouse in Economics". I thank Prof. Vicente Salas for introducing Coase to me in the 1990s, I have always find it a key reference in the area between industrial organization and public economics.

Tuesday, September 3, 2013

As a result
of recent consolidation movements in the telecommunications industry, the
Spanish incumbent Telefonica has called for the European markets to be more
similar to the US or the Chinese markets. That is, large markets with a small
number of vertically integrated competitors under a common regulatory regime. I
mostly agree with the objective, but not necessarily for the same reasons. The
segmentation of the telecommunications market is an example of the many things
that still separate us from a really integrated Europe. For example Satellite
TV operators act under national licenses, despite the fact that obviously
satellites can broadcast beyond borders. Similarly, mobile phone licenses and
roaming respect member state frontiers despite the fact that the spectrum does
not need to respect any legal border (paradoxically, the sound of the telephone is
the only remaining physical frontier between many member states, although many
other regulatory and legal frontiers remain). I also think that it would be
more efficient to have European licenses and truly European integrated operators
that exploit scale economies and compete among them. Although the action of the
European authorities has left member states less discretion in liberalizing
telecoms than electricity, still markets are mainly national and national
authorities have an important role. Spain has just eliminated its telecom
independent regulator despite warnings by the European Commission, with the support of, if
not following direct advice from, Telefonica. European regulators are better
than national regulators because their quality is higher and the risk of
capture lower, in the same way that in football’s Champions League referees are
better than in national leagues.

Friday, August 30, 2013

Some weeks ago, the Spanish government unveiled
its package to reform the electricity sector with the main objective of ending the
tariff deficit. This arises as the difference between the regulated costs of
the electricity firms and the revenues obtained through regulated tariffs paid
by consumers. Its volume, 28 billion euros by the end of 2012, highlights the
main regulatory problems of the Spanish electricity sector. The tariff deficit is the result
of bad past regulation (controlling the prices without reflecting underlying
costs) and constitutes an enormous distributive problem. According to experts
Natalia Fabra and Jordi Ortega, the remuneration of renewal energies has been
the scapegoat of the tariff deficit. Fabra argues that “the reform places the
burden of the cost of adjustment mainly on renewal energies and consumers, and
leaves untouched conventional energy despite the fact that its
over-remuneration is in the origin of the tariff deficit. The new legislation
does not define a regulatory framework that is able to face the challenges of
the electricity sector.” The new regulation alters the remuneration of
investments in renewals that have already been made. The reform leaves intact
the current electricity market and the remuneration of conventional energies
(nuclear, hydro, coal and natural gas). Truly
reforming the electricity sector amounts to solving together efficiency issues
(allocative efficiency and energy efficiency), income distribution and
environmental challenges. Europe has given too much discretion to member
states, as argued by another expert, Juan Delgado, and Spain keeps using this
discretion in a way that is inefficient, distributionaly regressive and
environmentally reckless. Final prices should be related to real costs by
introducing capacity markets and incentive regulation of the network elements. A
reasonable reform should favour the entry of new competitors and the
integration of European markets and commit to objectives of financial and
environmental sustainability and energy efficiency. The process of reform has
been characterized by debates behind close doors and ministerial disputes. Transparency
has been absent, as opposed to what happens in countries with better regulatory
systems, where a a white paper, stakeholder participation, and input from
an independent regulator (for example evaluating the alternatives) would have been
conventional. However, at the same time, the Spanish government is abolishing the independent energy regulatory agency.

Thursday, August 29, 2013

The Economist had a few issues ago a revealing piece on the excessive influence of business people into politics. Starting with the takeover of Italian politics by Berlusconi (and its disastrous effects), it goes on to survey the many ways in which large corporations influence the political arena. The conclusion of a pro-free market magazine as The Economist is clear: there is too much influence of large business on politics. Big firms are obviously necessary in a developed economy, especially when they perform in competitive and well regulated markets. However, their excessive influence in the political process is a corruption of democracy. One way they try to do so is by appointing former politicians, to try to gain access to policy decisions that impact their bottom line. Of course, former politicians have a right to be hired by large corporations, but these appointments should be subject to strict codes of conduct that are nowadays absent. However, some former politicians (such as two former prime ministers and several former economics ministers in Spain, who are in the boards of energy firms which they used to regulate) should reflect about the embarrassment they inflict in their political parties and former voters. And some companies should think twice about some of the low quality politicians they appoint. Although firms not always succeed to influence policy fully in the direction they desire, it is obviously not surprising that it is difficult from local media to follow the responsibilities that business people have of many bad social and economic outcomes, and it is not surprising that in many developed economies large firms pay a very low effective corporation tax. Large corporations are one of the great institutions of modern economies, but societies at large should reflect more about what is their role in bringing about good societal outcomes. If a business friendly magazine as The Economist says that business has too much influence on politics, the truth is probably even more serious.

Sunday, August 25, 2013

Although
it
has become fashionable to quote “Why Nations Fail” by Acemoglu and Robinson,
as the standard explanation of why institutions matter in economic
development,
there are better sources in my view to understand the role of
institutional
factors and its interaction with preferences and economic behavior. That
is why
I am re-reading the books by Masahiko Aoki ("Toward a Comparative
Institutional Analysis") and by Samuel Bowles ("Microeconomics") and
finding that they mention authors that I have been reading for other
reasons between my first reading and the current one, such as Basu and
Allen. Bowles and Aoki have in
common that they offer a game theoretic view of institutions, which is
presented as a critique of, and in dialogue with, standard economic theory.
Both of
these authors present their view of institutions as a platform to
initiate the
reader in the foundations of evolutionary economics. They also show interdisciplinary science at its best, namely not as an excuse to reduce rigour, but as an encouragement to find better mathematical models and other scientific techniques, such as evolutionary and agent-based modelling. A common theme is
that
economic outcomes are not necessarily the result of human design, but
often
they are the unintended consequences of human behavior, which does not
exclude
the role of collective action. Aoki is especially illuminating when he
presents
his view of social reality as a set of domain games (commons, social
networks, exchange,
organizations and polity) and how the linkages between these domains
create
complementarities. For example, the free rider problem in the
contribution to
public goods may be alleviated by the threat of social ostracism in a
game of
social interaction. All of this is better grounded in social (and other)
sciences
than “Why Nations Fail”, but it is slightly more complex, which is why
you will
not see it mentioned in the popular media. But I plan to teach it in my
courses
(more than I have done so far).

Wednesday, August 21, 2013

I like to
follow events in those countries where I have lived for a while or to which I
feel attached. One of them is Italy (the others are the UK, Chile and the US). I try to keep updated reading everything
on Italy in the Spanish media, and also in The Economist. But my preferred
method is to read every Sunday the column by Eugenio Scalfari in La Repubblica,
the newspaper that he founded some time ago. I like many things from Scalfari,
like his attention to economic details, must most of all I admire his firm
commitment against populism and corruption, and in favour of a federal Europe
(the state should be Europe and national governments should sooner rather than
later evaporate in a borderless Europe). The good news from recent columns is
that Berlusconi has very difficult his return to politics, and that finally it
seems that the forces of democracy and justice are prevailing and it is very
unlikely that the blackmail of Berlusconi has any chance of having any real
bite. Is democracy finally defeating populism and corruption? That is what
Scalfari seems to imply. He believes that the Partito Democratico, in spite of
his divisions, still has enough human assets to sustain a solid government
under prime minister Letta, and that the centre right will have to realize that its future lies in reforming itself to become a respectable European centre-right instead of a clan under the ownership of a corrupt tycoon who once decided to vertically integrate into politics instead of contracting out favours from corrupt politicians.

Thursday, August 15, 2013

If you have
a few days to read a substantial novel, “Freedom” by Jonathan Franzen
is a rewarding experience. The story of the Bergklund family is a portrait of
the USA in the George W. Bush years and the beginning of the Obama
administration. This matters, because the story of the relationships between
husbands and wives, between parents and children, is set against the background
of a political landscape where the relationship between money and politics is
bitterly criticized. The power of the wealthy families is shown in the well
connected Jewish family that is “explored” by Joey Bergklund, or the failure of
the grandparents of the family to
support her daughter (Joey’s mother later in time) because the rapist was the
son of a family that funded liberal causes. The use individuals that have
everything material make of freedom and the competition between them to have
fulfilling lives is the topic of the book. Being a portrait of contemporary
America, depression is perhaps in too many places, and perhaps there is also
too much demonstration of the author being well versed in things such as mobile
messages, social networks and e-mails. But it is a page turner. And take your
time to read the final pages until the end: it is a nice ending.

Tuesday, August 6, 2013

There is no doubt that the economic, financial and monetary crisis that
Europe has suffered in the last few years has exacerbated inequalities and
calls for a reaction that facilitates a return to equitable growth. A European federal state, rather than a European inter-governmental Union, is
necessary to achieve the triple objective of: 1) coordinating progress towards
economic growth and prosperity in the context of more democratic and
transparent politics, 2) making a European-wide effort to achieve higher levels
of income equality through high taxation and a modernized welfare state, and 3)
contributing to protecting the environment and tackling climate change by
putting a price on emissions, and promoting under the leadership of a coordinated
public sector at European level a new industrial revolution based on green
energy.

Statist solutions are no longer sufficient to solve the problems of a monetary Union, and risk making Europe irrelevant relative to the other international and emerging powers.

As Olaf
Cramme argues in the book “After the third way. The future of social democracy
in Europe”, “social democracy must not
underestimate the power of European integration at a time where the phenomenal
pressures of globalization and far-reaching societal transformations are asking
profound questions of all traditional political ideologies. At some point, a
movement, initiative or policy idea will capture the attention of the wider
European public. The center-left ought to make sure that it is part of it.”

Friday, August 2, 2013

Baumol and his co-authors explain that the cost disease
takes place because “progressive industries” experience above average
productivity growth, and “stagnant sectors” experience below average
productivity growth due to the irreducible amount of labour they require. The amount of labour in personal services is constant, but the workers cannot earn much less than workers in "progressive industries" (otherwise they would not accept working there). Many
stagnant sectors, for technological reasons, are in the public sector, which is one reason why the costs of
public sector activities keep increasing. The good news is that because on
average the economy’s productivity increases, we have more resources to afford
a more expensive public sector. The products and services from progressive
industries become cheaper (think of computers, mobile phones, electronic
appliances, but also agricultural products, which in this sense are
“progressive”), so that societies tend to spend more on stagnant sectors (health, education) than
on progressive ones. Unfortunately, that this cost structure is affordable for
society overall does not mean that it is affordable for everybody, and there
are distributive consequences of some groups not being able to afford cost
increases. These distributive implications are most worrying. Another caveat is
that activities with negative externalities also belong to the progressive
industries, like weapons construction and distribution or polluting activities
that produce climate change. Therefore, it is cheaper now to produce bad things. The condition for the affordability in general of
a more expensive public sector is that the economy’s productivity keeps
increasing at the rate of the last century. Baumol thinks that this is most
likely. Let’s hope that he is right.

Friday, July 26, 2013

Although Spain needs to
improve coordination among its regulatory agencies, the creation of a
National Commission on Markets and Competition would seem to be the
opposite of what the European Union had in mind. The controversial move merges eight agencies and commissions responsible
for competition, telecom, energy, mail, railways, airports, gambling
and audiovisual media. I argue in a working paper of IESE that neither the purported savings nor the need for greater
coordination justifies such total integration. What's more, government projections that this will save millions derive
more from changes to the merger as originally planned, rather than from
efficiencies gained through the merger itself.The European Commission has stated all along that it was
concerned about the loss of independence that would result from an
all-encompassing regulatory body. The most serious warning came in February 2013 from Neelie Kroes, vice
president of the Commission, who threatened sanctions unless Spain made
substantial changes to its original plan. The Spanish government responded by changing some of the most
questionable aspects. The whole summary of the working paper and a link to it can be accessed here.

Sunday, July 21, 2013

The journalist Beatriz Silva (my wife) and the photographer Lorenzo Moscia have produced a wonderful portrait of Barcelona. Beatriz writes "The monumental transformation undergone by Barcelona with the
1992 Olympic Games has failed to make the diverse
working-class city full of contrasts disappear where Pablo Picasso began
painting in 1896. It is not necessary to venture too deep into the
narrow streets of the El Raval or El Born neighborhoods to discover the
Barcelona of the belle époque where prostitutes wore the best clothes to welcome the sailors and where it is still possible to get drunk on absinthe. Despite being one of the richest cities in Spain, Barcelona has a
poverty rate of around 18%. This figure is even worsening due to an
economic crisis that has pushed up unemployment in Spain to 27%. This
situation particularly affects vulnerable groups such as the elderly and
immigrants who are forced to search for scraps of food or beg to
survive. The number of people sleeping on the street has grown by half
in just five years."

Tuesday, July 16, 2013

One of the
most encouraging trends of modern economics is its expansion to cover topics
that are close to other social or other scientific disciplines. In the past,
these trends were associated to economic imperialism, but more recently
economists accept the importance of being influenced by other disciplines. The
trend is most clear in the evolution of public economics or political economy.
In public economics, from a sub-discipline being dominated by tax and
expenditure theoretical issues, nowadays it focuses more on empirical work that
takes a more micro approach and that accepts the importance of bounded
rationality in the frontier between psychology and economics (behavioral
economics). This evolution can be observed in an empirical analysis of papers
covered by the National Bureau of Economic Research in the
recent past. Another sub-discipline that is evolving from a simplistic interaction
between politics and economics towards more complex and interesting issues is political economy. Today, it has also expanded
to cover issues about the importance of culture and history, as explained by
Alesina also for a recent NBER survey. A fascinating example of this incursion
of political economy in the territory of history is a paper that shows that the
density of civic movements and associations in Germany contributed to the rapid
expansion of the Nazi Party. The quantitative methods of modern economics provide the best service when they are associated to topics of a moral dimension.

Sunday, July 14, 2013

These days many Spaniards have to leave their country to find a job abroad. For many, this is a sad experience, but it also has a positive side. When I lived in Italy and England to complete my graduate studies I was judged by objective evaluators and I learned from their impartiality and objectivity. I had to cooperate and compete with other very good professionals and I was tested against high standards, professionally and ethically. This will also happen to Pep Guardiola, the successful soccer manager, who has just started his project at Bayern Munich in Germany. The German press has expressed its surprise by the news that the first and so far only player that Guardiola has recommended his new club to sign (Thiago Alcántara) is a player that has Guardiola's own brother (Pere Guardiola) as representative. The local Spanish and Catalan press almost never touched on these issues, because local myths are never submitted to the ethical standards of other mortals. Guardiola is an excellent manager, and I think that in his decision to work abroad there is something in himself that wants to submit himself to these high standards. When he left Spain as a football player to play in Italy (and later in Qatar and México), the experience as a player was a failure on the pitch, but he learned about sport and life, and surely that made him a better professional, which later showed in his carreer as a manager. In his spell as a player in Italy, he was accused of doping, and was judged in a trial, in which he was acquitted. I'm sure that he learned from that experience. It's good to be judged by people that think that you are just another mortal. Now Guardiola will learn from the high standards of a better and more impartial press, and at some point about the judgement of a more demanding fandom and society.